Living and working in the glorious West Country we are all too aware of the many thousands of holiday makers who visit our corner of the UK each year. Unsurprisingly therefore, many of our clients choose to let out properties to accommodate those holiday makers.
This form of letting is called “Furnished Holiday Letting” and, as opposed to letting for the residential market, it still has a favourable tax regime along with other “pro’s” if certain conditions are met. The principal condition is that the property must be available for letting for at least 210 days in each tax year and be actually let for 105 days. (Provided that there is a genuine intention to meet the actual letting requirement it will be possible to make an election to keep the property as qualifying for up to two years even though the condition may not be satisfied in those years.)
Once you have established that a property is an FHL then the tax advantages include ;
• Special Capital Gains Tax treatment on any gain arising on the future sale of the property – it could qualify for the lower CGT rate of 10% where the conditions for Entrepreneurs’ Relief are satisfied.
• The recently introduced rules restricting the deductibility of mortgage interest against rents do not apply to FHL’s – so all mortgage interest may still be able to be claimed as an expense.
• Profits made by FHL’s owned by married couples or those in civil partnerships can be divided between the couple in the most tax efficient manner, regardless of the proportions in which the property may be owned.
• Profits from an FHL business qualify as “relevant UK earnings” for the purposes of making tax efficient pension contributions.
• You can still take a holiday in your own property or make it available some of the time to your family or friends. (However, care would need to be taken to adjust the level of expenses claimed to reflect this private use.)
• Generally the rules for allowable expenditure are more generous than for residential let property.
Conversely, there are of course some points which don’t work in the favour of the holiday letting proprietor and which you should be aware of before embarking on this route ;
• Losses arising in an FHL business cannot be set against your other income. Separate claims must to be made for UK losses and EEA losses and each can only be offset against profits of the same or future years in each relevant sector.
• Holiday letting will have higher agent’s fees, advertising costs, and maintenance fees (for example more regular cleaning.)
• Owning a holiday property may be more time consuming than you think and you may find yourself spending your precious holiday sorting out problems.
With many years of experience in working with holiday landlords, together with our personal in depth knowledge of the West Country, we are ready to assist you with all the financial aspects of investing in this type of property income.
So, if you would like any further advice in this area, please do get in touch.